|pros • per • ly|

I got an email from my brother-in-law Jeff this morning explaining to me the difference in adsense money he is making on two of his websites. Site A is his old website(his baby) that he has been building for the last year or so and has achieved nominal success, enough to show him that some money can be made on the internet.

On this site he sells an ebook as his main source of revenue and then uses google adsense as well to make some extra income. Well Jeff is no dumby and has been watching what Jesse and I have been doing for the past year and a half and decided to start another site in a much more competitive yet lucrative industry.

He realized that in order to make a full time living online Site A probably wasn’t going to get him there. So he has been running both sites over the last couple of months and has finally started to see some traffic with the new more competitive Site B.

Here is what the email said:

Adam,
There is AdSense Money, then there is Ad$ense Money.

The first image attached shows how much adsense money i made after 18 ckicks on Site A (url omitted)
The second image attached shows how much i made after only 8 clicks on Site B
I knew the value of each industry varied but i had no idea it was by so much!

18 cents vs $1.33

Jeff

He also attached these two snapshots of his adsense earnings:

These are the adsense earnings of Site A:

Here are the adsense earnings of Site B:

Having seen the difference in earnings per click, where should he spend his time? Even if he only gets one fourth the traffic to Site B it will so far outperform Site A that he should spend 90% of his time on Site B. You can also see here that the click through rate for Site B is much higher as well.

Although working on Site A was good for him because it gave him a lot of internet marketing experience and a taste of success, he finally realized that there were much larger fish he could be going after. He also realized that if he was going to work so many hours on a site there should be a bigger payoff. I promise you that his motivation to work on Site B is at an all time high.

The lesson here is that if you have to take the time to work hard on a website idea, why not make sure that there is money to be made in the industry your website is in. The last thing you want to do is spend hundreds of hours on a site that will cap out at making you $1000 a month.

Google’s Adsense program allows advertisers to place advertisments on a publisher’s website. When a visitor clicks on the advertisment, the advertiser pays Google and Google pays the publisher of the ad. You’ll sometimes hear this mentioned from the advertiser’s perspective as the “content network.”

Here’s an example of Adsense on a popular personal finance blog:

In our Prosperly Portfolio we never use Adsense.  The cost of convenience is far too expensive.

The Cost of Google Adsense

Consider the example of an advertiser that’s selling a $100 product.  He is willing to pay Google $25 per conversion (hereafter known as the cost per conversion, or CPC).  It only makes sense that this same advertiser would be willing to pay an affiliate $25 per sale.  Cost per conversion (assuming a rational advertiser) is the same.

You’re looking to monetize your site in this advertiser’s niche, which gives you two options:

You’ll notice that Google’s cut can be a range with Option A.  I just threw that out there.  Last time I checked Google’s financial statements they were holding about $18B in cash (yes, that’s billion), so my guess is their cut is going to be more than a few dollars.  For the sake of this example, we’ll just assume you’re going 50/50 with the Big G and their take is $12.50.

Option B though…Google’s not even a part of it.

Now, there will be some Adsense fans that will immediately counter that they convert six, seven, even eight times the number of people toward a click than an affiliate could for a sale…how does that all work?

Let’s say that the advertiser is paying $.25 per click.  In order for them to sell their $100 product, they need to have 100 people click because 100 people at $.25/click gets them to their acceptable $25 cost per conversion.  The advertiser is then converting at one percent in this case (this is also the point where I reemphasize how important it is that you optimize your site for conversions.  If the advertiser in our example could increase their conversion rate by 100%, their cost per click would drop to $12.50).

In your case as the affiliate, if you convert just one percent of your visitors to purchase the product, you earn $25.  Your revenue per visitor is $.25 (equivalent to the advertiser’s $.25 per click).  If you were just running Adsense and sending the advertiser every visitor they got, you would still be making just a cut of the $25.

That math will be the same every time.  You’ll always be left with just a cut (and sometimes a miniscule cut at that) with Adsense.

How This Works in Real Life

The real metric you care about is revenue per visitor.

Option A, if you’re getting even a 25% clickthrough to your Ads, is still only providing you with a cut of $6.25.

Option B, if you’re converting one percent of your visitors, you’re bringing home $25.

Do you see how high your ad clickthrough rate needs to be to really make the Adsense worthwhile?  Even if you converted every single visitor into a click on your site, you would get only a share of the $25 that the advertiser is willing to pay.

Bloggers are Flushing Thousands Down the Toilet with Adsense

Where I really start wringing my hands is when I see a very high-profile blog using Google Adsense.  It’s insane.  They’ve never monetized any other way, they’re afraid to ask for a sale, and they won’t try something new.

Personal finance bloggers do this all of the time.  They have thousands and thousands of readers that love them and they rely on Adsense, with its extremely dismal clickthrough rate.  If they would, instead, consider targeted offers that they could endorse, or books they could write and sell, they would make thousands more.

Do NOT use Adsense because you’re afraid to sell a product.  Create a product so great that you’d be ashamed NOT to sell it.

What Are You Willing to Pay for Convenience (up front)?

When we’re evaluating a site for purchase and we see that its sole monetization source is Adsense, we’re giddy with delight.  Why?  The seller is going to be valuing the site using one of the most low-value monetization options available.  I’m reminded of Diana.  The owner was solely using Adsense, and had made virtually nothing.  We bought the site for $500 (it’s a great domain name — that valuation had nothing to do with its monetization) and it now makes anywhere from $100 to $500 per day.  Sure, a lot of factors went into its improvement, but a big one was simply a change in how it was being monetized.

Adsense is simply a convenient monetization strategy — nothing more.  What are you willing to pay for convenience?

Diversification (or Lack Thereof)

One other danger with Adsense is the fact that it’s your sole income source.  People will counter that by saying that they have multiple Adsense sites, but unless they’re also using separate Adsense accounts, they’re not diversified.

All of your eggs are in one basket with Google Adsense, and that’s dangerous.

Diversification is only a small argument against Google Adsense — the fact that you’re paying through the nose to use it in lieu of much more valuable monetization streams…that’s where the real problem lies.

The Appropriate Time to Monetize with Google Adsense

The appropriate time to monetize with Google Adsense is between the time that you buy the site, and switch it over to a much more profitable strategy.  And do that as fast as you can.

One of the ways I monetize LawnCareDirectory.com is by adding Google Adsense on a few of the pages. Well in order to maximize the amount I make on these pages I have tested different kinds of ad sizes. Well recently I did a Crazyegg report that showed me which of the two ads were getting clicked more.

The two different ads I used were the lartge rectangle and the horizontal banner. The major thing I was testing with the banner was to include related images above the banner trying to make them line up as closely as possible with the 4 Google ads. As shown below:

I was very surprised by the results. Here is a snapshot of the Crazyegg report. The little dots are actual visitor clicks.

As you can see the horizontal banner with the images above it got 68 of the 115 clicks that were done on this page. The large rectangle which 4 years ago was said to be the most effective Adsense size, got 1 click. This could be attributed to the fact that the medium rectangle is partly below the fold but the difference between the two is significant. You can also see that many people clicked on the images of the houses themselves even though these do not link to anything.